Renter's Insurance

Among the reasons for renting rather than buying a home is that you're not making a long-term financial commitment to a mortgage loan, property taxes, and homeowner's insurance. But one commitment you should make is to purchase a renter's insurance policy that covers your personal property and your liability for accidents that could happen in your living space.

Things Do Go Wrong

Why do you need insurance if you rent? A landlord's insurance policy covers the building. If a leaky roof floods your living room, you won't have to pay for repairs to the ceiling, floor, or walls. But you'll probably be stuck with the bill for cleaning or replacing any furniture or rugs that got wet or moldy. The more valuable your possessions, the more essential the insurance becomes. And if the leak (or worse) is your fault, say from a faucet that was left running when you went to work, you could be liable for the damage.

And what if a guest slips in the shower and breaks her leg? In the best-case scenario, she has health insurance, the break isn't serious, and that's the end of it. But a lawyer could argue that you created a hazard and sue you for negligence.

Run for Coverage

Fortunately renter's insurance offers an easy and affordable way to protect yourself from all sorts of losses, both inside and outside your home. It covers your possessions against losses from fire and smoke, theft, vandalism, lightning, wind, explosions, and water damage from leaking plumbing.

Things you take with you away from home are also generally covered, though the amount of coverage may range from 10% of their value to full replacement cost, depending on your policy. You may also be covered for things you borrow that are lost, stolen, or damaged while you have them.

Renter's insurance will also cover your liability for injuries people suffer in your home or from your pets.

Renter's insurance will also cover your liability for injuries people suffer in your home or from your pets. It also pays legal costs you might incur if you get hit with a liability lawsuit, though there may be a substantial deductible for this protection.

Evaluate What You Need

Before you buy renter's insurance, you should inventory your possessions to determine the amount of coverage you need. Document what you have with photographs or a video and make a detailed list of your possessions to keep as backup in some other location, like your office or a safe deposit box.

Don't be too conservative in your estimate of what your belongings are worth. What might seem at first glance to be a small inventory may actually be worth a substantial amount in replacement costs. Make a note of the model and serial numbers of your expensive electronic equipment and appliances, get written valuations of jewelry, art, or family heirlooms, and keep detailed records of any collectibles.

Illustration: Cristi Cash

Once you have a sense of how much coverage you'll need, look for an insurance company that offers this type of policy. If you've worked with an agent to buy car insurance, for example, see what your auto insurance company has to offer. It also pays to do an online search so you have a sense of the range of costs and coverage. Before deciding on a policy, be sure you understand the limits of coverage and the terms and conditions that apply. Comparison shopping is every bit as important when you're looking for insurance as it is with the other things you buy.

When You Have a Loss

Renter's insurance works the same way as other types of insurance. You pay an annual premium, and if any of the losses covered under your policy occur, you file a claim. A deductible applies, which you pay out of pocket. The larger the deductible is, the lower the premium tends to be. That's one of the tradeoffs you have to evaluate in buying the coverage.

If you have a loss that's covered by your policy, you are compensated in one of two ways. If you have an actual cash value policy, you'll be reimbursed for what the item was worth at the time it was damaged, stolen, or lost. For example, if you file a claim for a destroyed computer that's several years old, you'll receive significantly less than you paid. But if your claim is for an asset that appreciated in value, such as jewelry, you should get more than the purchase price. Fortunately, many insurers offer replacement value policies, which pay what a similar item would cost today. That's generally a better choice.

Renter's insurance doesn't protect you against everything that could go wrong in your home.

What's Not Covered

Renter's insurance doesn't protect you against everything that could go wrong in your home. Damage from certain natural disasters, such as floods and earthquakes, isn't covered under most policies. If you think you're at risk for something that's not included in a policy you're considering, look further. You might consider an additional policy, or a rider to your basic policy, to give you the protection you need.

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